Market Talk August 12th, 2015
The Chinese revaluation of Yuan. has unsettle Asian Equity markets and the obvious spread across the globe. The Nikkei and Hang Seng were off 1.6 and 2.4% respectively which rolled over into Europe. The recent performance in both the DAX and CAC finished today as they became the worst performers – down around 3.6% each. The US market was also feeling the pressure with the Dow is off 240pts mid-day.
We are seeing the bounce in Gold and Silver as forecast and Oil is recovering with Brent back above the psychological $50 +2.25% (Oct delivery) on currency inflation movement.
The bond market saw the “flight to quality” as dealers like to term it. This has been a thrust into US Treasuries because of the bid for the dollar. The yield curve flattened 2/10 by around 4BP putting 10’s at 2.09% and 2/30’s by 7bp. Worth keeping an eye on the TY/RX spread last seen at +147BP.
Surprising many, today’s German auction was not well bid, given the flight to quality. It is clear that the trend is toward the dollar and the turmoil in Europe just will not go away.
Peripheral markets widened to core and in continued thin summer trading things could start to prove difficult as this rally progresses.
DXY lost 1.2% in today’s trading putting that around 96.15 last seen. The Euro performed best in the currency space +1.25% against the US$ adding to the confusion.
We have not yet seen downgrade warnings for some of the EM land yet. With Treasuries outperforming everything on the board, spreads will widen as Equity markets decline further. This appears to be playing exactly into our forecasts for the flight to quality helping to create the bubble in government.
China Devalued to Bring Yuan in Line with Technicals
Confusion hits the markets as stocks, currencies and commodities fall sharply across the region as investors fear a stalling China economy and possible currency war despite Beijing’s assurances. We warned that this devaluation wasNOT A FLUKE, and far too many people just misrepresent what is truly going on within the world economy so it comes as no surprise they missed this one.
The central bank of China has come out and stated publicly they use capital flow analysis. They are far more professional than any other central bank. They took the market right up to the technical resistance. There are just too many people contriving scenarios and theories with a biased view to start with typically to support something else they would like to see. This is neither a currency war nor is it some wild scheme to support gold. The world economy is contracting if not imploding all because politicians are hunting money for taxes and confiscation because governments are going broke.
What more needs to be said. Our forecast that the dollar would rally sharply contrary to those who keep calling for its demise remains intact. If you do not understand the world economy and how we are all connected, you might as well apply for a bailout because you are going to need one.
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